An iphone and mobile telephone service can easily be compared in the marketplace. Most products offered by most MLMs cannot be easily compared, and many MLM companies misuse this fact to their advantage, the Amway price reductions last year are an indication of this fact. IBOs/distributors will ALWAYS have legitimate additional incentives to buy the products, including the bonus involved, the learning process to better market the products to customers and downline, and to exhibit a desired self-consumption example.

Please withdraw your point. Thank you.

Of much more concern to the Amway business model is the bill in Tennessee which outlaws the ATS (Amway Tool Scam). There is FAR greater money involved in this issue than all the others combined.

Motive *isn't* soley determined by outside sales. If a network was selling iphones and mobile contract, 100% internally, and the network price (even after expenses) was less than street price, then a motive can be discerned – getting a cheap iphone!

Same with any product really, and that's where some discernment is necessary. Really, the real value of the product in the marketplace is what is important. "Outside sales" just make it much, much easier to determine that value, but they're not necessary and there's no particular reason there should be.

A smart company of course would want to avoid inspection on this issue so mandate at least some retail sales so that they have evidence their product has real demand at whatever price they've set.

Of more concern to me, and you allude to this in your post, is the many, many MLMs that have mandatory personal volume via autoship programs – even worse is when that mandatory personal volume *explictly excludes* volume from non-distributor "preferred customers" who order direct from the company.

That kind of setup is clearly inviting illegitimate demand as well of course as predictable ending up with distributors with garages full of stock and a long-term dislike of the industry.

Distributors also wouldn't (couldn't afford to) CONTINUE to buy $10,000 pencils. This is the logic behind the FTC logic of internal consumption being the major source of profit rather than the new recruits. However, retail sales are needed as well, as churn could skew the analysis.

The $10,000 pencils is obviously the extreme case. The scenario becomes increasingly murky when the pencils are $5,000, $1,000, $10, $1, etc. This is where Amway has had problems, trying to say the product QUALITY makes the high priced products a good VALUE, and the recent price reductions have significantly lessened this concern. You can only ride the quality horse so far, it eventually gets bogged down.

"In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme."

The FTC appears to be saying the $10,000 pencil issue is okay, as long as the main source of income is from repeat purchases rather than new IBOs/distributors joining. I prefer a retail requirement as well, but this thread was about "Making Sense of the FTC Staff Advisory Letter," not "What Tex and Kevin think about what separates good and bad MLM."

In addition, the FTC seems to be very supportive of buying clubs, and even MLM designed buying clubs, which is essentially what Amway has been, with negligible outside retail volume. There is a membership fee, and the idea of group buying to reduce price is included in both. The major difference between a traditional buying club and an MLM one is some "save" (and far surpass this concept to making a net profit, if one considers no other overhead costs, and an smaller group even making a net profit when the other overhead costs are considered) more than others, and the FTC appears to have no concerns with this issue.

I view the FTC's position that "$10,000 pencils with no outside sales are okay, as long as most of the profit is from repeat purchases, not new IBO/distributors" as a "rough cut" to an MLM being acceptable, and the "outside retail sales are required" a much more "fined tuned, refined, and better measure of real market demand" measure of an MLM, and one much less subject to abuse.